By The ETF Professor
It may seem hard to believe in the moment, what with all the concerns about a slowing economy and diminished import demand from Europe, but China's oil demand is expected to continue soaring. In fact, Barclays Capital said in a report Wednesday that China's oil demand will be “significantly” higher than what the International Energy Agency is forecasting.
China may need 13.6 million barrels a day of fuel, versus an IEA estimate of 10.5 million, based on growth in China's energy demand versus income levels in the past decade, Bloomberg reported, citing Barclays. The bank said China's oil demand, based on recent consumption trends, could soar 4.2 million barrels per day over the next five years.
Of course, China is already the world's largest energy consumer. And of course, these are the ETFs long-term investors will want to look at to play China's increased oil demand.
Global X China Energy ETF (CHIE): While China has long since ceased being an oil exporter (it became a net importer in 1993), the Global X China Energy ETF is worth a look because it is home to China's largest oil companies, such as PetroChina (PRT) and CNOOC (CEO). That pair and others will be making billions of dollars in acquisitions in the coming years to meet soaring demand at home and that could lead to increased profits.
Market Vectors Africa Index ETF (AFK): Looking at this chart, you want no part of AFK right now. That said, remember that the energy sector accounts for over 13% of AFK's weight. At the country level, Nigeria, a major exporter of oil to China, gets an allocation of more than 19%. If AFK ever rebalanced to feature Angola, the ETF would be even more legitimized as a China oil demand play.
Market Vectors Russia ETF (RSX): Russia, not Saudi Arabia, is the world's largest oil producer. And Russia isn't constrained by OPEC production quotas. China buys plenty of Russian crude and will keep doing so regardless of the price. If the market's antics continue, the Market Vectors Russia ETF could fall into the low $20s where it becomes really interesting, maybe even too compelling to ignore.
EGShares Energy GEMS ETF (OGEM): Russia and China combine for almost 49% of this unheralded ETF's weight. Even if you're not looking to play China's rising oil demand, OGEM is a great way to get involved with a plethora of state-run oil companies if that's your bag. OGEM will be in trouble if support at $18 is breached.
Bull case: China's economy will keep growing at a pace that Westerners find satisfying, driving oil demand in the process. In addition, it would be helpful to CHIE and OGEM if Chinese oil companies remain active on the M&A front.
Bear case: China attempts to power its economy with cheaper or cleaner alternatives to oil. Or the Chinese economy slows more than expected.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.